Pharmacy Cash Prices

By Frank Firke

This blog post is part of our ongoing insights series from our data team exploring various trends within our business and healthcare more broadly

Prices for prescription drugs have continued to be a focus of national attention over the last decade. Although drug pricing is viewed as (and sometimes is!) opaque and arbitrary, it tends to be much more consistent than prices for medical services. Insurers and pharmacy benefit managers (PBMs) set a national price so that every member on a given plan will see the same price at nearly every pharmacy. In principle, this makes sense because drugs are packaged goods rather than services, which are individually negotiated and subject to local norms and markets. Even with insurers and PBMs setting consistent drug prices, additional variation can occur due to a concept called “pharmacy cash prices.”

Pharmacies offer “cash prices” (also known as the “usual and customary” rate) that are the amount they would charge a patient who didn’t use insurance or any sort of other discount. In general — and 100% of the time at Oscar — when a patient goes to a pharmacy that charges a cash price that is lower than the rate negotiated by the insurance company, the patient will pay the cheaper price. This happens very infrequently for expensive branded drugs, but much more often with generic drugs, as you can see in the chart below.

The chart also makes clear that this is much more likely to happen at a big box store (e.g. Costco) than at other types of pharmacy. The reasons for this are complex — different pharmacies have different business models and incentives, and “cash prices” aren’t always reported consistently. Even in the highly commoditized and competitive generic drug market, there’s still a lot of pricing variation just across pharmacies (even for the same drug). If we want to be able to better understand and predict how much drugs will cost us and our members, understanding the ins and outs of drug pricing is key. And at a macro level, this can really add up — this recent study found that Medicare Part D plans pay about 20% more than the Costco price in aggregate on the most common generic drugs.

Frank Firke is a Director on Oscar’s Data Science team, working on clinical programs and total cost of care.

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